Planning to buy a home or refinance? You should consider how long you’re willing to pay for it just as much as how much you’re going to spend.
So, pay attention to your mortgage term or the amount of time you have to pay off your loan. Terms influence a lot of things about your mortgage, including the size of your monthly payment and how much you’ll pay in interest over the life of your loan.
Here are three things you should know about your term, so you can make the best decision for your home and bank account.
1) Terms affect your monthly payments: In the U.S., mortgage terms cover a wide range of options. Many borrowers choose a longer term because it stretches their mortgage balance over a longer period and lowers the monthly payments. Mortgages with shorter terms usually come with larger monthly payments because you have less time to pay off the loan.
2) Terms determine how much you pay in interest: Just because a longer-term mortgage offers the advantage of lower monthly payments, doesn’t mean it’s always the best option. When you get a mortgage, your lender charges interest on the money you’re borrowing. Typically, if you choose a shorter-term length, you’ll pay less in interest because you’ll pay off your loan sooner. By contrast, a longer-term length usually means paying more in interest which can make a mortgage more expensive over time.
3) Refinancing can change your mortgage term: Mortgage terms aren’t set in stone. If you’ve locked in a longer term, you can still opt to refinance it down the road to potentially speed up your payoff schedule and save on interest. Because refinancing is similar to getting a new mortgage, you need to pay close attention to refinance rates to determine the best time for you to make the change. You should also be prepared to apply for a refinance the same way you did for your first mortgage—you’ll need to submit documents, get an appraisal, pay closing costs, and more.
Still curious about mortgage terms? Contact a Wyndham Capital loan officer today to learn more about your options.